Entrepreneurship And E-Commerce: What Does The Fox Say?

A major part of my twenty three year existence has been spent analyzing products and services being offered in the market from a consumer point of view. Though I doubt it is ever going to be the same again in future, it has enabled me to observe the fact that in some cases it is very difficult to align the interests of the consumer with those of the manager or, as in our case, an entrepreneur. Especially in a domain like e-commerce. This makes decision making difficult.

Over the last four issues in the “Entrepreneurship and E-commerce” series, we tried to analyze the dynamics currently in motion within this industry and suggested the path that e-commerce firms (both big and small) should follow to foster the formation of a stable and sustainable e-commerce ecosystem. One that protects the interests of all the related stakeholders, right from the investors, to the entrepreneurs, the employees and eventually the end customers. Enough has been discussed on these aspects.

What we haven’t analyzed is one of the most important factors in the external environment of an industry that makes or breaks the decision to set shop in an economy- the government support and the legal framework. How much support can be expected from the government? Is it committed to ease up doing business? Is the policy making in accordance with this commitment? For instance, in a volatile, uncertain, complex and ambiguous world, the least thing that you would want to be bothered about your new e-commerce venture is the decision whether you should enter multi-brand or single-brand retail. What could be worse than realizing two years down the road that your venture is no longer feasible, because the government didn’t think so two years ago but now suddenly it sees code red?

Starting up has its own nuances and enough problems to be thought upon and solved. No one wants to get caught in a never-ending mess of unclear legal definitions and restrictions. This is precisely what could have been said of the e-commerce (specifically e-tail) industry scenario in India, not that long ago. True, it has matured over the last decade, but this maturity is still very new-found.

In this issue, we look at this journey of the Indian e-commerce ecosystem, from the perspective of the Indian government and its laws, as it gets ready to slowly shed its puberty. Even as we applaud the Indian government for standing up and dispelling the dark clouds of uncertainty over e-commerce, a lot still remains desired. We’ll analyze the work done by the government touching different aspects that makes life easier for e-commerce entrepreneurs today, and discuss what more is required.

Let us first touch upon some gray areas concerning e-commerce in India.

Definitions:

This is one thing that I would like to put across in the simplest manner possible. You need to be able to define the business you are into. I’m sure Mr. Bansal can define e-commerce on his part. But his definition needs to be aligned with how the government sees it. Else, we all know the amount of restructuring Flipkart underwent to abide by the ambiguous government norms.

The amount of FDI flowing into this sector warranted laying down definitions of: retail selling, wholesale selling and marketplace selling on e-commerce platforms. So, DIPP’s recent definitions of e-commerce, inventory based model and marketplace model is surely a step in the right direction.

FDI or no FDI?

The definition conundrum flows into the FDI scenario as well. The gaps are visible for everyone to see. In January earlier this year DIPP (The Department of Industrial Policy and Promotion) refused to recognize marketplaces under FDI norms. Today we have 100% FDI in marketplaces! Even more chaotic is the multi-brand vs single-brand retail conundrum.

The recent FDI guidelines issued (refer the info-graphic below on the new guidelines) is therefore a very essential and well worked out provision. Allowing FDI into marketplaces was always the next step but protecting the interests of the brick and mortar retailers by placing some restrictions on these marketplaces and their modus operandi was also required. Appeasing both the parties, with a step in the positive direction should be complimented.

However the next level is tougher to achieve. FDI has to be allowed in multi-brand retail also. How the government works its way around the complications involved will be interesting to see.

Retail: Online vs offline

The major bone of contention in Indian retail industry today is the tussle between the online (e-commerce) and offline (brick and mortar) retailers. Offline retailers accuse online marketplaces of trying to pry away their customer base by offering huge discounts backed by loads investor money. Is it within the limits of fair competition? The jury is out. But it will be a task for the government to frame laws acceptable to both these sets of retailers. This conflict of interest takes us to our next issue.

A regulatory body?

Whenever a large market is catered to by a large number of firms, competition is likely to arise, and firms are likely to indulge in cutthroat practices to build and maintain their market share. In such a case it becomes necessary to have a regulatory authority to keep the sector under check, ensure fair competition within the firms and also protect the interest of the customers.

Imagine the mess Indian telecom sector would be in without the presence of the Telecom Regulatory Authority of India (TRAI). Such a regulator is required for settlements and resolution of disputes between firms under its purview.

Also given the broad spectrum of goods that can be sold online, a proper list of allowed items needs to generated and monitored. Sectors such as e-healthcare and e-pharmacies need to be tightly monitored. Recently e-commerce firm Snapdeal was involved in a goof up for selling prohibited items such as i-pill and unwanted-72 on its site. There were rumors that TRAI would be appointed as the watchdog for e-commerce in India, but they have never materialized.

The FY17 Budget:

The industrial fraternity in India had huge hopes from Mr. Arun Jaitley’s Budget for FY17. For once they hoped for a set of laws that were right on the money. He did deliver on other fronts, but for e-commerce there were more assurances as compared to concrete plans. The major takeaways for the e-commerce sector include:

100% tax deduction for up to three years, for startups listed after 1 April, 2016.

Amendments in the Companies Act allowing for reduction in the registration time from one month to a couple of days

Allowing FDI in food retail (the largest category under retail in India)

Formation of National Online Market for Farm Produce, allowing for a digitally connected centralized e-market within which they can transact based on prices from various regions being projected on a real time basis, rather than within a designated mandi, as it was under the Agricultural Produce and Marketing of Commodities Act.

Taxation:

The Goods and Services Tax (GST), irrespective of when it passes, is widely being backed as a panacea for nearly everything that’s wrong with the Indian taxation system, and consequently the economy. E-commerce has always been plagued by precarious tax laws. Despite a vague definition, an online marketplace in India is liable to pay service tax because it generates invoices. Also, since e-commerce involves movement of goods between states, the taxation in different states varies drastically because VAT and sales tax are under the states’ purview. With few states now demanding these e-commerce players to pay Octroi and the government increasing cess charges, they believe GST will be their saving grace. Else what happened between the Karnataka state government and Amazon regarding tax payments will slowly become commonplace as e-commerce is getting ready to expand across Tier II and III cities across India.

Hence it is no surprise that e-commerce entrepreneurs are eagerly awaiting the passage of the GST bill amidst a political logjam in the parliament as it will eliminate all kinds of indirect taxes and make doing business a lot easier.

The Fox:

A fox can move pretty fast, clocking up to 30 miles per hour. Indian government’s pace regarding e-commerce was anything but fast. It was slow, even by their standards! But what has emanated out of it is good and promising. And a fox is wise.

True, they took time. But the positive part is that having witnessed the sector grow and mature, the government today is in a better position to lay down the markers. And the new guidelines issued by the DIPP do seem intelligent and logical. Thought has been put into creating a sustainable ecosystem, one within which both online and offline channels can thrive. In fact, they might just have found a way to put an end to the wasteful discount model and ensure that a marketplace stays a marketplace.

Info-graphic: What does the fox say?

Also the government is currently developing a software that will capture and monitor export data arising from e-commerce. This will allow it to boost the e-commerce exports and at the same time provide readymade shipment solutions to small individual sellers. Impressive, to say the least. So let’s cross our fingers and wait for what the fox says next!

All aboard!!

The crux, therefore, is that doing business only makes sense when you can make decisions based upon your own analysis and insights (or whims and fancies), rather than being driven by the existent or non-existent government policies. We are proponents of capitalism, after all! Conceived in 2008, Flipkart fell prey to these faulty policies and it was only after 2013 that they could decide (read made to realize) that a marketplace model was the correct choice of doing business in Indian e-commerce. It is undoubtedly India’s mightiest unicorn, but when the Bansals set the ball rolling in 2007, after all these years they would have imagined their heads to be much lighter. Instead we had the curious case of WS Retail, a slick maneuver nevertheless.

With US now pushing the WTO to come up with a doctrine for global e-commerce and cyber security, the Indian government needs to pull itself together. After all a business recognized by the court of law is always more secure than one trying to get around it. For the industry to actually reach, forget outgrow, the projected $130 billion mark by 2020, the government needs to chalk out a definitive and precise set of rules and guidelines for e-commerce. One that can be interpreted without ambiguity. Doing business these days is as it is a game of shadows. Let there be light! For once, the government needs to disconnect the political angle and think rationally.